Malaysia’s DRB-Hicom to acquire automaker Proton

Malaysian conglomerate DRB--Hicom Berhad said yesterday it will buy national automaker Proton in a 3 billion ringgit (US$957 million) deal that could help revive Proton’s flagging fortunes.

DRB-Hicom said it would pay 1.29 billion ringgit for government investment arm Khazanah Nasional’s 43 percent stake in Proton. It would then make an offer for all Proton shares it does not own at 5.50 ringgit a share. Analysts said this would bring the total deal to about 3 billion ringgit.

Khazanah said the share sale would help put Proton on a more competitive footing. Analysts said it could help turnaround the struggling automaker, which has failed in recent years to seal tie-ups with foreign automakers, including Volkswagen AG, because of the government’s insistence on maintaining control over a high-profile local company.

DRB-Hicom, controlled by billionaire tycoon Syed Mokhtar al-Bukhary, distributes and assembles vehicles for Volkswagen, Daimler AG’s -Mercedes-Benz and Honda Motor Co. The group is also involved in banking, services and property sectors.

“It’s a fair deal. It bodes well and will open new doors for Proton,” said Ahmad Maghfur, analyst with OSK Research.

Trading of Proton and DRB-Hicom shares was suspended early yesterday. Proton’s share price has nearly doubled in the past two months, closing on Friday at 5.18 ringgit. DRB-Hicom last traded at 2.17 ringgit.

DRB-Hicom pledged in a statement to safeguard Proton as a national car company. At the same time, it said it would seek to grow Proton in the regional market and help make Malaysia a preferred auto manufacturing center.

Once the king of the road, Proton’s fortunes have dwindled with its market share falling to about 30 percent from more than two-thirds just more than five years ago because of greater competition as Malaysia liberalized its auto market.

It has been on the hunt for a foreign partner since Japan’s Mitsubishi Motors Corp, which helped set up Proton in the early 1980s, sold its stake in 2004 because of financial problems. However, previous alliance talks with Volkswagen and General Motors Co collapsed.

Analysts have said Proton, which also owns British sports car maker Lotus, would need to tie-up with a large auto manufacturer to cut costs, gain new technology and penetrate the global market.

Ahmad said DRB-Hicom’s entry would boost Proton with cash injection and new businesses that would add capacity at one of its plants in northern state of Perak that is greatly underutilized.

He said the deal valued Proton at a discount based on its net assets including two manufacturing plants, but was justified given Proton’s poor prospects and annual capital expenditure of about 800 million ringgit. The deal, entirely paid for in cash, will weigh on DRB-Hicom which earlier this year paid 623 million ringgit to buy Khazanah’s stake in national postal company POS Malaysia.